America Is Losing Its Cushion To Absorb High Levels Of Healthcare Spending

Doctor Vivek Murthy stands among other bystanders during the first day of legal arguments over the Affordable Care Act outside the Supreme Court in Washington March 26, 2012. U.S. President Barack Obama's sweeping healthcare overhaul on Monday went before the U.S. Supreme Court where the nine justices began hearing arguments in a historic test of the law's validity under the U.S. Constitution. REUTERS/Jason Reed (UNITED STATES - Tags: POLITICS HEALTH CIVIL UNREST) - RTR2ZWK8

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One complaint about American health spending is that we spend too much. It usually looks like this: “We spend 17 percent of our Gross Domestic Product (GDP) on health care. The next most expensive country is Switzerland, which spends 12 percent.” Put that way, it does seem like we are spending too much. However, it invites another question: Is the five percent extra that we spend on health care taking away from other goods and services we need?

The answer to that question is no. But that is changing with Obamacare. Although the proportion of GDP taken up by health spending is an interesting figure, actual dollars spent on health care versus dollars spent on all other goods and services tells us more about whether we spend “too much” on health care.

New research by Luca Lorenzoni and colleagues, from the Organization for Economic Co-operation and Development, compares U.S. health spending to that of Canada, France, Germany, the Netherlands, and Switzerland. In 2000, U.S. GDP per capita was $39,631. Of that, we spent $5,152 on health care. By subtraction, the amount that was left after spending on health care was $34,479—the highest in the international comparison. The second highest came from Switzerland, where GDP per capita (adjusted for purchasing power parity, which reconciles the exchange rate with nominal prices of goods and services) was $35,889, and health spending was $3,553. This left $32,336 for other goods and services.

The worst off of these countries was France. Despite spending only $2,784 per capita on health care, GDP per capita was only $28,408, leaving $25,624 for all other goods and services. Put another way, an American had one-third more dollars to spend on non-health goods and services, despite a much higher share of GDP accounted by health spending!

Fast forward to 2011, and the news is mixed. On the one hand, the rate of growth in health spending slowed in the United States faster than in the other countries, starting in 2007. (Needless to say, this was many years before Obamacare, although the Obamacrats try to take credit for it.)

On the other hand, the United States has moved in the wrong direction on several indicators since 2000. Government-controlled health spending as a share of all health spending increased by 4.8 percentage points, from 44.0 percent to 48.8 percent, whereas it shrank somewhat in Canada, France, and Germany. Also, the share of government-controlled health spending consumed by administrative costs increased by 1.2 percentage points, from 5.1 percent to 6.3 percent, whereas it shrank in Canada, France, Netherlands, and Switzerland.

Further, despite the growth in consumer-driven health care, in the United States the share of spending paid directly out-of-pocket dropped by 2.1 percentage points, from 14.2 percent (2003) to 12.1 percent (2011), whereas it increased somewhat in Canada and France. This means that insurance companies, as well as government, took control of a greater share of patients’ health dollars.

With respect to the share of GDP spent on goods and services other than health care, the United States also lost ground. In 2011, it was $35,212 per capita. However, other countries increased the amount of income not allocated to health care faster. Indeed, it appears that almost all the U.S. GDP increase during those eleven years was chewed up by health care.

In 2011, Swiss GDP per capita after health spending was $35,098, not significantly different than in the United States. Switzerland, where patients control one-quarter of their health spending directly (versus less than one-eighth in the U.S.) has managed to have economic growth without letting the healthcare sector devour too much of it. The Netherlands and Canada also shrank the gap significantly, to $32,917 and $32,015 per capita, respectively.

The best explanation for the U.S. relative deterioration in this measure is that other countries reduced or at least held steady the role of government in health care. However, from 2000 to 2011 government control of U.S. health care grew significantly. Needless to say, Obamacare has put that trend into overdrive. We can expect the United States to deteriorate in measurements of international health spending in the years to come, until Obamacare is repealed and replaced by health reform that puts patients and physicians, not politicians and bureaucrats, in charge of health spending.

John R. Graham is Senior Fellow at The Independent Institute (www.independent.org), Oakland, CA and Senior Fellow at National Center for Policy Analysis.